Products & Their RisksQuestion 39 of 398
If a bond's current yield is 5% and its coupon rate is 5%, the bond is most likely trading at:
a.A discount
b.A premium
c.Par value
d.An unknown price
Explanation
Current yield equals the coupon rate only when the market price equals par, because current yield is coupon divided by price. If current yield were higher it would be a discount, and if lower it would be a premium.
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